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Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level Cambridge International Advanced Subsidiary and Advanced Level

International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on
International Advanced Subsidiary and Advanced Level ACCOUNTING Paper 2 Structured Questions Candidates answer on

ACCOUNTING

Paper 2 Structured Questions

Candidates answer on the Question Paper.

No Additional Materials are required.

9706/22

February/March 2017

1 hour 30 minutes

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs or for rough working. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE IN ANY BARCODES.

Answer all questions. All accounting statements are to be presented in good style. International accounting terms and formats should be used as appropriate. Workings must be shown. You may use a calculator.

At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

2

1 Razia, a sole trader, started her business on 1 July 2015 selling ladies’ clothing. Razia did not keep proper books of account, but was able to provide the following information.

Summary of bank account for the year ended 30 June 2016

$

$

Capital introduced Cash banked Balance c/d

36 340

Payments to trade payables

80 690

78 780

Shop

rental

25 200

4 330

Shop fixtures and fittings Purchase of motor vehicle Motor expenses

3 600

 

5 800

3 140

Light and heat

1 020

 

119 450

119 450

Additional information

1 Total revenue for the year was $92 600. All sales were made for cash.

2 Razia kept no record of her cash drawings.

3 The following expenses were paid from cash takings before the money was banked:

 

$

General expenses

950

Assistants’ wages

2870

4 Cash in hand at 30 June 2016 was $1250.

REQUIRED

(a) Prepare the cash account, showing clearly the value of Razia’s drawings for the year.

[4]

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Additional information

3

1 All sales made a gross margin of 40%.

2 During the year, Razia had taken goods, $640 at cost price, for her own use.

3 Inventory at 30 June 2016 had been counted and was valued at cost price $31 900. Razia was aware that some goods had been stolen during the year.

4 Razia owed $8940 to trade suppliers at 30 June 2016.

REQUIRED

(b) Calculate the value of inventory stolen during the year ended 30 June 2016 at cost price.

[4]

Additional information

1 At 30 June 2016, the following expenses were accrued:

 

$

Assistants’ wages

120

Light and heat

150

2 Non-current assets should be depreciated as follows:

Shop fixtures and fittings at 15% per annum using the reducing balance method

Motor vehicle using the straight-line method over five years. The estimated residual value of the motor vehicle after five years is $400.

3 The annual charge for shop rental is $21 600.

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REQUIRED

4

(c) Prepare the income statement for the year ended 30 June 2016.

[8]

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(d) Calculate, to two decimal places, the following ratios at 30 June 2016. State the
(d)
Calculate, to two decimal places, the following ratios at 30 June 2016. State the formula
used in each case.
(i)
Current ratio
Formula
Calculation
[2]
(ii)
Liquid (acid test) ratio
Formula
Calculation
[2]
(e)
(i)
Name two other ratios a business could calculate to explain its liquidity position.
1
2
[2]
(ii)
State two limitations of using ratio analysis.
1
2
[2]
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Additional information

6

Razia’s brother has suggested that Razia should increase the mark-up on her goods.

REQUIRED

(f) Advise Razia whether or not she should increase the mark-up on her goods. Justify your answer by discussing advantages and disadvantages of doing this.

[6]

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[Total: 30]

7

Question 2 is on the next page.

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8

2 Sturgess has provided the following information:

1 The provision for doubtful debts at 1 August 2015 was $1940.

2 Trade receivables at 31 July 2016 were $48 500.

3 A customer owing $2100 has been declared bankrupt. This amount is to be written off.

4 A customer owing $900 did not pay within the agreed credit terms. There are concerns about the recovery of this debt.

5 The business policy is to make a 5% provision for doubtful debts on remaining trade receivables.

REQUIRED

(a) (i) State one reason why a business may make a provision for doubtful debts.
(a)
(i)
State one reason why a business may make a provision for doubtful debts.
[1]
(ii)
State one accounting concept applied while making the provision for doubtful debts.
[1]
(iii)
Prepare the provision for doubtful debts account for the year ended 31 July 2016.
[5]

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(b) Explain how a provision for doubtful debts is treated in:

(i)

the statement of financial position

(ii)

the income statement

[3]

Additional information

1 Accrued telephone expenses at 1 August 2015 were $275.

2 Prepaid telephone expenses at 1 August 2015 were $380.

3 The total amounts paid for telephone expenses during the year were $4750. This included a rental charge of $2980 covering the period from 1 November 2015 to 31 October 2016.

4 Telephone call charges of $840 were paid on 12 September 2016 covering the period from 1 June 2016 to 31 August 2016.

REQUIRED

(c) Prepare the telephone expenses account for the year ended 31 July 2016.

 

[5]

 

[Total: 15]

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10

3 King provided the following information for non-current assets at 1 April 2015.

$

Property plant and machinery Land and buildings – cost Plant and machinery – cost Accumulated depreciation Buildings Plant and machinery

Land and buildings – cost Plant and machinery – cost Accumulated depreciation Buildings Plant and machinery
Land and buildings – cost Plant and machinery – cost Accumulated depreciation Buildings Plant and machinery
Land and buildings – cost Plant and machinery – cost Accumulated depreciation Buildings Plant and machinery

252 000

123 000

21 000

49 000

During the year ended 31 March 2016, the following took place:

1 Land was revalued to $202 500. It had originally cost $182 000.

2 A machine was sold on 30 November 2015. It had a net book value on 1 April 2015 of $46 350 and an original cost of $76 200.

3 A machine was purchased on 1 December 2015 at a cost of $62 850.

The depreciation policy for non-current assets is as follows:

Buildings 2% per annum using the straight-line method

Plant and machinery 20% per annum using the reducing balance method

Depreciation is charged on a month-by-month basis.

REQUIRED

(a)

Calculate the total depreciation charge for buildings for the year ended 31 March 2016.

 

[1]

(b)

Calculate the total depreciation charge for plant and machinery for the year ended 31 March 2016.

[3]

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(c) Prepare an extract from the statement of financial position at 31 March 2016 for non-current assets.

King Extract from Statement of Financial Position at 31 March 2016

 

Accumulated

Cost / Valuation

Depreciation

Net Book Value

$

$

$

Workings:

 

[8]

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12

(d) State three causes of depreciation.

1

2

3

[3]

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[Total: 15]

13

4 Miu owns a manufacturing business making a single product.

REQUIRED

(a) State the difference between a cost unit and a cost centre. [2] (b) State
(a)
State the difference between a cost unit and a cost centre.
[2]
(b)
State the difference between a production cost centre and a service cost centre.
[2]
(c)
State what is meant by contribution.
[2]
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Additional information

14

Miu currently uses marginal costing to value her inventory. The following budgeted information is available for the months of January and February:

Per unit

$

Selling price

12

Variable production cost

5

January

February

 

$

$

Fixed production overhead costs

9000

9000

Fixed administrative costs

800

800

Units

Units

Sales

3600

5400

Production

4500

4500

There was no opening inventory in January.

Production is expected to be 54 000 units for the year.

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REQUIRED

15

(d) Prepare a budgeted profit statement for each of the two months, January and February, using marginal costing. Clearly show the opening and closing inventories each month.

Budgeted Profit Statement

January

$

$

February

$

$

 

[7]

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Additional information

16

Miu is considering using absorption costing to value her inventory.

REQUIRED

(e)

Calculate the production overhead absorption rate per unit.

 

[1]

(f)

Prepare a budgeted profit statement for each of the two months, January and February, using absorption costing. Clearly show the opening and closing inventories each month.

Budgeted Profit Statement

January

$

$

February

$

$

[8]

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(g)

Reconcile the difference in budgeted profit figures in parts (d) and (f).

January

February

$

$

 

[3]

(h)

Advise Miu whether or not she should change from marginal costing to absorption costing. Give reasons to justify your answer.

[5]

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[Total: 30]

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Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series.

Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

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